Blog by Artur Gryz

Finance Minister Jim Flaherty may intervene in amortization period for home mortgages

Home sales in this region haven’t been this slow in a long time. According to the Real Estate Board of Greater Vancouver, the number of transactions in May, June, and July were all below those for the same months in any of the previous 10 years.

In July, sales were down 18.4 percent from the previous year. In June, sales fell 27.6 percent over the same month in 2011. And in May, the annual drop was 15.5 percent.

In the midst of this slowdown, Finance Minister Jim Flaherty announced the fourth reduction in the amortization period for home mortgages in four years. At one point in the past decade, people could take out a 40-year loan to buy a home. But in 2008, it was ratcheted back to 35 years, and then to 30 years in 2011. In June the federal government brought it down to 25 years.

So is there a connection between the shorter borrowing period and the slowdown in sales? Peter Simpson, president and CEO of the Greater Vancouver Home Builders’ Association, is keenly interested in knowing the answer to this question.

In a phone interview with the Georgia Straight, Simpson said that Flaherty has assured his national organization, the Canadian Home Builders’ Association, that the government will review what impact the new amortization period is having. “I hope he looks at markets where affordability is already an issue, like Vancouver,” Simpson stated.

He added that during the summer months, home sales traditionally slow down. He’s more concerned if the monthly sales volume falters after the Labour Day weekend, when most people are back at work. That’s when he suggested that Flaherty and the prime minister will have to assess whether to take action.

“If it continues to fall, they’re going to have to take a good hard look at what their actions have caused—and be prepared to make some adjustments,” he said. “I don’t know what those adjustments are.”

Simpson pointed out that the monthly sales figures include new and resale housing. The real threat to the economy, he said, is if a real-estate slowdown leads to a sharp reduction in housing starts. That’s because new-home construction stimulates the sale of appliances, carpets, and other products. “For every housing start, there are 2.8 person years of employment that are created,” Simpson stated. “That’s direct and indirect jobs.”